European shares slip as traders await key Central Bank decisions
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STOXX 600 declines 0.5%, reaching a two-week low.
DAX, CAC 40, and FTSE 100 under pressure amid weak economic sentiment.
The US Dollar strengthens ahead of the Fed’s policy announcement; focus shifts to the updated dot plot.
Bitcoin holds near all-time highs, while Gold remains poised for its best year since 2010.
Markets Steady but Cautious Ahead of Central Bank Decisions
European equities opened weaker on Tuesday as investors tread cautiously ahead of this week’s pivotal central bank meetings, led by the US Federal Reserve (Fed) on Wednesday. The pan-European STOXX 600 dropped 0.5%, driven by losses in oil and gas sectors, with German DAX and French CAC 40 retreating by up to 0.7%.
Lars Skovgaard, Senior Investment Strategist at Danske Bank, noted the relative lack of positive catalysts for European markets: “Santa Claus seems to be riding over Europe, delivering gifts exclusively to US equity investors.”
In contrast, US markets remain robust, with the S&P 500 advancing 27% year-to-date, compared to the STOXX 600’s modest 7% gain. Asian equities mirrored the caution, with Japan’s Nikkei 225 dipping 0.2%, and Kospi falling 1.3% amid political uncertainty in South Korea.
Focus Shifts to Central Banks and the Fed's "Hawkish Cut"
The Federal Reserve is widely expected to cut rates by 25 basis points on Wednesday, but market attention remains fixed on the dot plot and Chair Jerome Powell’s comments for clues on the pace of cuts in 2025.
Current projections: Markets anticipate 45 bps of further easing next year, equivalent to one 25-bp cut and an 80% chance of a second. Risks to dovish outlook: Inflation concerns could lead the Fed to signal a “hawkish cut,” with revised projections for only two to three cuts in 2025 instead of four.
The Bank of England (BoE) and Bank of Japan (BoJ) are set to hold rates steady on Thursday, while the Riksbank may deliver a rate cut. In emerging markets, Bank Indonesia is expected to hike rates to support the rupiah, which hovers near four-month lows.
Currencies and Commodities
The US Dollar Index (DXY) climbed 0.2% to 106.99, reinforcing its 5% year-to-date gain.
The Japanese Yen (USD/JPY) weakened to 153.84, pressured by slim prospects of a BoJ hike.
Euro (EUR/USD) traded at $1.0490, poised for a near 5% annual decline.
Sterling (GBP/USD) gained 0.1% following stronger-than-expected UK wage growth data, reinforcing the BoE’s cautious stance.
Oil and Gold
Oil prices continued to edge lower, reflecting concerns over China’s demand and softer global economic activity:
Brent crude fell 0.8% to $73.34, while WTI slid 1% to $70.04 per barrel.
Gold remained resilient, holding steady at $2,647 per ounce, marking a 29% rise in 2024 – its best performance since 2010.
Outlook: Markets Await Clarity
With traders eyeing central bank decisions, market volatility is likely to rise. The Fed’s tone, particularly its forward guidance on interest rates, will set the stage for global markets heading into 2025. While US equities remain buoyant, European stocks face continued economic headwinds, limiting near-term upside.
Markets Steady but Cautious Ahead of Central Bank Decisions
European equities opened weaker on Tuesday as investors tread cautiously ahead of this week’s pivotal central bank meetings, led by the US Federal Reserve (Fed) on Wednesday. The pan-European STOXX 600 dropped 0.5%, driven by losses in oil and gas sectors, with German DAX and French CAC 40 retreating by up to 0.7%.
Lars Skovgaard, Senior Investment Strategist at Danske Bank, noted the relative lack of positive catalysts for European markets: “Santa Claus seems to be riding over Europe, delivering gifts exclusively to US equity investors.”
In contrast, US markets remain robust, with the S&P 500 advancing 27% year-to-date, compared to the STOXX 600’s modest 7% gain. Asian equities mirrored the caution, with Japan’s Nikkei 225 dipping 0.2%, and Kospi falling 1.3% amid political uncertainty in South Korea.
Focus Shifts to Central Banks and the Fed's "Hawkish Cut"
The Federal Reserve is widely expected to cut rates by 25 basis points on Wednesday, but market attention remains fixed on the dot plot and Chair Jerome Powell’s comments for clues on the pace of cuts in 2025.
Current projections: Markets anticipate 45 bps of further easing next year, equivalent to one 25-bp cut and an 80% chance of a second. Risks to dovish outlook: Inflation concerns could lead the Fed to signal a “hawkish cut,” with revised projections for only two to three cuts in 2025 instead of four.
The Bank of England (BoE) and Bank of Japan (BoJ) are set to hold rates steady on Thursday, while the Riksbank may deliver a rate cut. In emerging markets, Bank Indonesia is expected to hike rates to support the rupiah, which hovers near four-month lows.
Currencies and Commodities
The US Dollar Index (DXY) climbed 0.2% to 106.99, reinforcing its 5% year-to-date gain.
The Japanese Yen (USD/JPY) weakened to 153.84, pressured by slim prospects of a BoJ hike.
Euro (EUR/USD) traded at $1.0490, poised for a near 5% annual decline.
Sterling (GBP/USD) gained 0.1% following stronger-than-expected UK wage growth data, reinforcing the BoE’s cautious stance.
Oil and Gold
Oil prices continued to edge lower, reflecting concerns over China’s demand and softer global economic activity:
Brent crude fell 0.8% to $73.34, while WTI slid 1% to $70.04 per barrel.
Gold remained resilient, holding steady at $2,647 per ounce, marking a 29% rise in 2024 – its best performance since 2010.
Outlook: Markets Await Clarity
With traders eyeing central bank decisions, market volatility is likely to rise. The Fed’s tone, particularly its forward guidance on interest rates, will set the stage for global markets heading into 2025. While US equities remain buoyant, European stocks face continued economic headwinds, limiting near-term upside.